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TechPro offers instructional courses in e-commerce website design. The company holds classes in a building that it owns. Classify each of TechPro’s costs below as (a) variable (V) or fixed (F), and (b) direct (D) or indirect (I). Assume the cost object is an individual class.

a.

b.

a.

b.

1. Depreciation of the classroom building

4. Travel expenses for salesperson

2. Monthly Internet connection cost

5. Depreciation on computers used for classes

3. Instructional manuals for students

6. Instructor wage (per class)

Short Answer

Expert verified

a.

b.

a.

b.

F

I

1. Depreciation of the classroom building

F

I

4. Travel expenses for salesperson

V

D

2. Monthly Internet connection cost

F

I

5. Depreciation on computers used for classes

V

D

3. Instructional manuals for students

V

D

6. Instructor wage (per class)

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01

Definition of Cost Objects

The item the business entity separately calculates cost is known as the cost object. The cost incurred by the business entity is managed using the cost object only.

02

Classification of cost

1. Depreciation of classroom building is classified as a fixed indirect cost because this cost is incurred even when the business entity does not produce any good. Also, it is not directly incurred for the production of the goods.

2.The monthly internet connection cost is incurred according to internet usage. Therefore, it is considered a variable cost. Also, this is a direct cost because observation can quickly identify it.

3. The cost incurred for instructional manuals will be variable because it depends upon the number of students registering for the course. It is a direct cost because it is directly associated with the product.

4. Travel expenses for the salesperson will be fixed because this cost does not depend upon the number of students who register for the program. Also, it is not directly attached to the business entity’s product.

5. Depreciation of computers is classified as a fixed indirect cost because this cost is incurred even when the business entity does not produce any good. Also, it is not directly incurred for the production of the goods.

6. Wages paid to instructors are a variable cost because it depends upon the number of classes the instructor takes. Also, it is a direct cost because it can be identified with the product offered by the business entity.

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Question: BTN 14-3 Assume that you are the managerial accountant at Infostore, a manufacturer of hard drives, CDs, and DVDs. Its reporting year-end is December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill because of poor cash flow management. On November 15, the purchasing department purchased excess inventory of CD raw materials in anticipation of rapid growth of this product beginning in January. To decrease the company’s tax liability, the chief financial officer tells you to record the purchase of this inventory as part of supplies and expense it in the current year; this would decrease the company’s tax liability by increasing expenses.

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